Marine Insurance

Definitions:
Functional definition: Marine Insurance is a cooperative device to spread the loss arising out
of happening of marine peril over a number of persons who are exposed to it and who want
to insure themselves against this risk.
Contractual definition: Insurance is a contract between two parties whereby one party
agrees to undertake the risk of another in exchange for consideration known as premium
and promises to indemnify the other party on happening of a marine peril.

Classification of the Marine Insurance

1) Hull Insurance: Insurance of vessel and its equipments are included under hull
insurance. There are a number of classifications of vessels such as ocean steamers,
sailing vessels, builders, risks, fleet policies and so on.
2) Cargo Insurance: It may be written under a single risk policy or floating policies. The
cargo may be of any description, for example, wares, merchandise, property, goods
and so on.
3) Freight Insurance: Freight is to be payable for the carriage of cargoes or if the vessel
is chartered, the money to be paid for the vessel. The carrier is unable to earn freight
if the goods or property (called cargoes) are not safely transported. Freight insurance
covers the risk of not receiving freight.
4) Liability Insurance: Liability Insurance is one in which the insurer undertakes to
indemnify against the loss which the insured may suffer on account of liability to a
third party caused by collision of the ship and other similar hazards.

Various types of Maritime perils that are insured against

a) Natural Perils g) Restraints and detainments by the Govt.,
b) Un-natural or moral hazards or perils King, Princes and people of enemy country
c) Rovers, thieves etc. h) Strike, Riots and civil commotion
d) Enemies i) Jettison
e) Man-of-War j) Barratry
f) Capture and Seizure k) Fire , Explosion and other perils

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Classification of Marine Insurance Policies
There are different types of marine insurance policy.
1) Time Policy: This policy is taken for specific time period. The subject-matter of
insurance is covered for a particular period whatever might be the number of voyages
within that period. In order to validate a claim, the loss must take palace within the
period of specified period.
2) Voyage Policy: The important factor here is the voyage and not the time. The policy
covers a particular voyage irrespective of the time factor. In order to validate a claim
the loss must take place within or during the specified voyage.
3) Mixed Policy: Time and voyage policies do contain some practical difficulties. For
example, under a time policy a vessel may be on the mid-ocean when the time
expires. There is no cover for the remaining portion of the journey even through loss
might take place during this extended period. Similarly, under a voyage policy a cargo
owner might require some time to clear his goods etc. or to observe some necessary
port formalities at the final port of destination and there is no guarantee that loss will
not take place during this extended time period. In order to overcome such
difficulties a new type of policy, known as mixed policy, has been introduced. It is
virtually a mixture of both time policy and voyage policy.
4) Floating Policy: This type of policy is usually used for cargo insurance. In order to
save the difficulties of merchants in effecting numbers of policies for each time of
shipment, a floating policy may be issued for a round sum covering the numbers of
anticipated shipments.
5) Building Risk Policy: These types of policies are issued in respect of ships whilst in
the process of erection or building at dock-yards.
6) Valued Policy: under this policy the value of the loss to be compensated is fixed and
remains constant throughout the risk except where there is overvaluation. The value
of the subject matter is agreed between insured and insurer at the time of taking this
insurance.
7) Unvalued Policy/Valuable Policy: under this policy the value of the policy is not
determined at the time of commencement of risk but is left to be valued when the
loss take place. That is, value of the compensation is determined on the basis of the
market price of the damaged property.

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MATHEMATICAL PROBLEM
Problem – 1:
A cargo consisting of 20,000 bags was insured for Tk. 2,00,000. But 2,000 bags were
damaged and would realize Tk. 3 per bag. The following expenses also incurred by the
insured 1% sales commission, Tk. 50 as survey fee and Tk. 60 as selling expenses. You are
required-
a) To prepare a statement of partial loss and insurance claim assuming that goods would
have realized Tk. 9 per bag in their undamaged condition and the policy is valued.

Problem – 2:
A cargo consisting of 10,000 bags was insured for Tk. 80,000. But 1,200 bags of Cargo were
damaged and would realize Tk.3 per bag. The following expenses were also incurred by the
insured:

Additional information:
Sales Commission – 2%
Survey fee – Tk. 50
Selling expenses – Tk. 100

Requirements
a) Prepare a particular average statement of partial loss and amount of insurance claim
assuming that goods would have realized Tk. 9 per bag in their undamaged condition
and the policy is valued.
b) Prepare a particular average statement of partial loss and amount of insurance claim
assuming that the goods would have realized Tk. 7 per bag in their undamaged
condition and the policy is valued and
c) State what would be the extent of claim in each of the above two cases if the policy
in unvalued.

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Problem – 3:
Compute the partial loss (particular averages on cargo) from the following:
10,000 bags of cement of Tk. 300 each were insured for Tk. 30,00,000. But 1,000 bags were
damaged. Damaged bags were sold for Tk. 60 each.

Additional information:
a) Sales Commission 2 percent.
b) Survey fee Tk. 2,000
c) Selling expenses Tk. 2,000

Requirement:
Prepare the statement of particular average along with the insurance claims, assuming that
cement could be sold for Tk. 320 each and the policy is valued. Calculate the amount of
insurance claim if policy is unvalued.

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